The Lloyds (LSE: LLOY) share price has fallen 9% over 12 months, with the decline really all coming in 2022. But I think the modest scale of the drop shows resilience, certainly after the events of the past few months.
I can’t be perpetually happy if my investment remains depressed though, as I’ll want the price to rise eventually. So why do I think Lloyds shares could end the year ahead of where they are today?
It’s easy to think the Lloyds share price must have hit the bottom by now and will surely regain lost ground. But that’s risky thinking, as there’s no guarantee that what goes down must come up.
Caution needed
Whatever price I buy a share at, my maximum possible future loss is always 100%. I don’t expect anything like that to happen to Lloyds, but it’s an investing lesson I try to remember.
Over the same 12 months, the Barclays share price had lost around twice as much as Lloyds. The FTSE 100 has managed a 4% gain over the year, so banks have suffered unduly.
Rising interest rates are good, helping boost margins on lending. But when I saw UK inflation soaring, I started to think it was sure to give my Lloyds shares a hammering again. And then came the Russian invasion of Ukraine.
So why am I relatively pleased by the events so far? I think UK investors are starting to see Lloyds as a reasonably safe hedge against an economic downturn. At least, at current price levels.
A safety stock?
What are Lloyds’ safety factors? Energy prices are rocketing now, but Lloyds is not a fuel-intensive business. Yes, it needs energy. But it’s not consuming it like an industrial manufacturer would.
Lloyds also seems safe from growing infrastructure problems, both in Europe and globally. Its business is money, and that goes by wire.
I think being mainly UK-focused helps too, as it lowers international risk. I wonder if that’s why Barclays shares might have fallen that much further?
Lloyds is by no means immune to any possible recession, of course. And I do expect a tough year ahead. The bank has already recorded an impairment of £200m, partly to offset the potential impact of our economic outlook.
Lloyds share price turnaround?
But that’s not a lot, not compared to sums previously set aside to cope with the pandemic. That turned out to be way more than needed, and we’ve since had impairment credits as a result. It reinforces my belief that Lloyds is being cautious, and managing its financial situation conservatively.
The share price is still down, but I can see a few things that might turn it around before the end of the year. There’s general economic easing, and inflation peaking and starting to come down.
But specifically, I’ll be watching Lloyds quarterly updates and keeping any eye on impairments progress. If it turns out not to be too damaging, I reckon Lloyds share price sentiment could improve.
This might be wishful thinking on my part, after owning Lloyds shares for years. And the financial sector is certainly under pressure. I may not be buying for now, but I’m holding.